How to Value Your Company for The Purpose of Selling It

Valuation Methods

When you consider the purpose of selling your company, you need to determine its value. In order to value your company, numerous methods you can follow will help you to set a price. The procedure of valuation of your company is not at all an easy task as if your keep the company valuation too high, that may scare off the potential buyers while keeping the lower price will lead you towards leaving money on the table. But expecting the perfect valuation for selling your company is too tough as you cannot understand its real worth until a buyer will hand over the check.

Here are the methods you need to follow to value your business.

Valuation Methods

Though setting the appropriate price for your company is almost an impossible task, you have to set a reasonable asking price or price range. Here are some approaches-

Here analyses are done on the business revenues with the assumption that the buyer wants to buy the business as another way of investment where he wants to complete with real estate, stocks, bonds and so on. The inevitable question that arises here is “What kind of return can the buyer expect?”

In this method, calculation is done on the total valuation of all assets, beginning with material ones such as furniture to the intangible ones such as copyrights and trademarks. In order to get the resale value of your company, this approach is followed.

  • Industry Rules and Formulas

There are several industry-based formulas and rules you can use for the valuation of your company such as three times of the earnings within a period of three years or considering two times of the book value of your company. These formulas will give you a rough estimation of the current market value, but you cannot get the exact valuation.

  • Comparable

In order to get the ideal approach for the valuation of your company for its selling purpose, you may follow this method where you need to get the information what other companies like yours are getting. But this method is applicable only then when the sales take place recently.

Taking the Help of Professionals

In the course of valuation your company for the selling purpose, you can use professional resources including accountants, appraisers, business brokers and education seminars. In such method, the accountant can help you to organize as well as evaluate the financial data whereas the brokers can track down the intangible information about selling rates of various comparable businesses. Appraisers will help you to value the business assets.

Naming the Price

Remember that the lower end of the price range should be little higher than the liquidation value of your business assets whereas the higher end should be related to the income projections and the interest of an enthusiastic buyer to pay in order to get earnings in future. Some important factors that are not related to the business’s income, comparable or assets, but plays roles in the valuation of your business are:

  • Terms of payment
  • Market demands
  • Types of buyer
  • Your urgency for selling and so on

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